Sunday, June 19, 2016

Some Quick Thoughts on Special Features of the Final PAMA Rule

On Friday evening, June 17, 2016, CMS released the final PAMA rule. (For links see HERE).

While encyclopedic summaries are available at several websites - see HERE - below the break are my thoughts on ten or twelve aspects of the rule that may have particular interest.

Highlights of the Rule

Here I highlight some early key findings, surprises, or puzzles in the final
rulemaking.

One Year Delay

The topline news is that CMS has deferred implementation
from 1/1/2017 to 1/1/2018, and will use a data collection period of 1/1/2016 to
6/30/2016 (1H2016) and a reporting period from 1/1/2017 to 3/31/2017. This will allow CMS the middle part of 2017
to calculate medians, publish propose final prices in early fall 2017, and
final prices by 11/1/2017, effective 1/1/2018.

ADLTs Also Delayed One Year

To avoid having some ADLT tests shift to a PAMA fee schedule
early, CMS will commence PAMA prices for ADLTs on 1/1/2018 as well.

Reporting entities are defined somewhat differently than
proposed through a method that may include some hospital outreach labs, but in
a way that will probably still cause some confusion during implementation.

No Special Lab Test MAC

CMS will not adopt one or more special MACs for either lab test
claims processing or lab test coverage decisions.

A Deeper Dive Into Some Quirks of the Rule

Handling Hospital
Based Outreach Labs

CMS must define a “reporting entity” which is required to
report under PAMA. This has several
implications. For one, there are
eye-poppingly heavy civil monetary penalties available under PAMA, so whether
or not one is required to report, and report correctly, has large implications
for lab managers. Second, there is
widespread suspicion that hospital outreach labs have, at least historically,
been paid at somewhat higher rates than larger commercial labs, in which case
their inclusion will tend to raise the median of CMS lab fee schedules under
PAMA market reporting.

PAMA law itself was clearly biased against hospital lab
reporting, because it required a reporting lab to have over 50% of Medicare
revenues (defined broadly, to include even Medicare Part D) come from Medicare CLFS
or Medicare Part B. CMS had proposed to
define the reporting level for this financial calculation to be a TIN. In an independent single lab, where one TIN
= one NPI = one CLIA certificate, this would be easy. In a lab embedded in a hospital financial
system, this is harder, and CMS proposed to use the top level TIN of a health
system as the level for defining Medicare lab revenues. Thus, a TIN which was a health system that
held three hospitals, two nursing homes, and a rehab clinic, with seven CLIA
lab certificates amongst them, would never receive over 50% of its total Part
A/B/C/D revenue from lab tests, no matter how large its outreach lab was. In addition, CMS foresaw the issue that
inpatient labs would receive some share of their budget from Part A DRG-bundled
or APC-bundled lab tests, but that it would be problematic or even impossible to
assign dollar revenue numbers to these internal budgetary machinations.

In the final rule, CMS continues to roll up financial reporting
to an overlying TIN (whether a health entity as just described or a lab
corporation with one TIN but multiple NPIs and CLIA certificates), but define
the 50% revenue at the level of the NPI.
CMS surmises that some hospital outreach labs, if they bill CMS on Claim
Form 1500 with their own NPI, may be qualifying labs now. While I am not a hospital accounting expert,
I suspect this will not always leave a simple calculation unless a hospital has
firewalled the entire management, revenue, and cost structure of the “outreach
lab” from other aspects of the hospital so that its NPI and CLIA certificate
truly represent a standalone entity for accounting purposes.

Claims Period and Reporting
Period

The claims window will be moved forward to 1H2016 while
giving labs 2H2016 to figure out to report, and to report it, in 1Q2017. Reporting are each different private payer
rate for each test provided, with a volume for each rate. CMS requires reporting of fully adjucated
rates, for example after any appeals or audits, and net of any discounts on the
part of the lab and payer (not patient copay discounts). CMS does not require reporting of zero rate
claims (e.g. denials) and CMS expects reporting of “allowed” rates (including copays
or deductibles) from either contracted payers or out of network payers. The date of final adjucation must fall in
the window, for example, a November claim appealed or audited to a final result
in April would be in a 1H window. While discounted
rates are to be reported, labs paid on a capitated rate are not reported. Claims paid en masse (e.g. you get a check from
the payer but no line item rates) are not reported, on the simple reasoning,
that they are not reportable on a line item basis.

The reporting period is 1Q2017. It’s never been clear to me what is gained
by calling this a “reporting period” rather than a “3/31/2017 deadine.” For example, taxes are due April 15 – we don’t
elaborate to call it a January 1 to April 15 “reporting period.” Enough said.

Definition of ADLT

Protein MAAAs In

CMS dropped its odd claim that an ADLT, which Congress
defined as a test of “DNA, RNA, or protein” had to include DNA or RNA. (DNA only OK, RNA only OK, protein only not
OK). No one thought this made sense as
an interpretation of Hill language and CMS dropped its idea. All-protein MAAA tests are now in.

“ADLT = New Information”

However, CMS maintained an unusual insertion that the test
must not only be a “unique algorithm” (in statute) but must also provide a “new
clinical diagnostic information that cannot be obtained from any other test or
combination of tests.” CMS maintains
this must be the case for an ADLT to be “advanced” and thus meet the intention
of Congress to reward innovation.
Clearly, there are now going to be a couple of problems here. For example, is the “new information” defined
by the indication – e.g. kidney cancer or glioblastoma prognosis? Must a MAAA be compared to any and all
existing MAAAs before it can be guaranteed to provide “new information?” What if there is a MAAA in 2018 for glioblastoma
prognosis, and another different MAAA for glioblastoma prognosis in 2019? CMS might disqualify the second test for not
being “new information” but now the first test as well no longer provides
information not available from any other test.
I suspect CMS will decline to implement this concept much, because of
the resulting bird’s nest of problems.
CMS might use this clause to discourage classification of multiple gene report
tests as “MAAAs” because they do not report a “single” patient specific result
and report together a listing of individual gene reports – but there are
probably circumstances where pharmacogenetics tests and some sophisticated
tumor gene panel tests do bring together bioinformatics and new conclusions not
available from the line-item gene results they contain.

Another argument against where CMS landed is that Congress
explicitly requires sole-source FDA cleared or approved tests to be ADLTs, and
makes no remark that their clearances or approvals must be unique in indication
or intended use. It seems contradictory
for Congress to include FDA endorsed sole source tests as ADLTs and for CMS to
exclude them willy-nilly on its own discretion if it doesn’t think their
indications are unique enough, and also
to assume that doing so was the secret intent of Congress.

CMS Doesn’t Like
Licensing

CMS does some hemming and hawing to implement the concept of
“sole source lab.” It is little more
lenient about an ADLT lab company holding more than one CLIA license (OK), or
even opening a new site due to increased volume and demand (OK), and allowing
the lab to retain a marketing sales force that is outsourced (OK). However, CMS also taketh away, saying that
an algorithm licensed from a university prevents a lab from being an ADLT
lab. It notes that the lab can still
provide the test under CLDT rather than ADLT rules, and argues that beneficiary
access should be unchanged.

Defining an ADLT

CMS will develop an application form for labs to apply for
ADLT status. This should occur in the coming
months. CMS notes that this information
is not FOIA exempt by PAMA, but may be FOIA exempt if clearly labeled not
merely as “FOIA Exempt” but labeled exempt by status as a trade secret with an
explanation of some sort of why it is a damaging trade secret. An ADLT must be reviewed and approved by
CMS. An ADLT payment period will not
start until a lab has both been approved by CMS as an ADLT and approved for
coverage by a MAC.

The 130% Recoupment
Rule Softened

The law allows three quarters of initial payment for the
ADLT at its initial list charge which should be a rate commonly available to
the public for an uninsured patient. Later,
after the third quarter, the CMS payment rate morphs into the median of the
ADLT lab’s private payer rates, revised annually. PAMA allows CMS to recoup the difference
when the CMS temporary rate is more than 130% of what turns out to be the
private payer rate during the same period.
CMS had proposed to recoup the entire difference between the median
market rate and the CMS temporary rate, but in the final rule, will only recoup
the difference above a threshold of 130% of the CMS rate. (E.g. if the CMS temporary rate is $150 list
price, and the median during that period proves to have been $100, CMS will
recoup the difference between $130 and $150, not the difference between $100
and $150.)

Gapfill and Crosswalk Continue

The gapfill and crosswalk processes will continue for new
tests that are outside the ADLT and three-year-reporting system. These processes have existing for many
years, with minor adjustments. CMS was
required by the Medicare Modernization Act of 2003 to put the processing in
regulation, which it did by basically cutting and pasting the manual text into
regulation in 2006. The new PAMA
statute essentially lifts the CMS regulation out of the Code of Federal
Regulations and pastes it into the statute (meaning it can no longer be revised
ad hoc by CMS rulemaking as an internally generated regulation). PAMA also requires CMS report the rationale
of gapfill decisions by MACs, and CMS admits in the past it has posted but not
explained MAC gapfill reasoning. It’s not clear yet, at least to me, whether
that will be required until after 1/1/2017 or 1/1/2018.

Surprise Gift: Resources
to Provide a Test Defined

Gapfilling encourages MACs to look to charges for the test,
resources to provide the test, payments of private payers for the test (this
was years before PAMA), and resources to provide tests similar to the test that
is being priced. I have heard MAC
policymakers argue about what “resources to provide the test” means – does it
include R&D? If so, how is that
amortized or accounted for? Does it include management? License costs? Overhead?
Indirect costs? If so, how? Does it include profit? To me,
it has been clear “resources” account for all costs – this is how other fee
schedules like the PFS, the OPPS outpatient schedule, the DRG inpatient
schedule are intended to be set up (even when they fall short of all costs, due
to budget caps in the financial math).
CMS states that Congress (in the context of ADLTs) intends for CMS to
compensate for all resources – writing, “we view the statute as
intending to award special payment status to the one laboratory that is
expending the resourcesfor
all aspects of the test—developing it, marketing it to the public, performing
it, and selling it.” While not smack dab
in the middle of the gapfill discussion, it seems reasonable that this is how
CMS views the meaning of the same term, “resources,” which also appears in the
gapfill statute as how Congress intends the term “resources” to be interpreted.

CDLT/ADLT Coverage to
be Defined by LCDs

Congress included a remark in PAMA that coverage (e.g.
reasonable and necessary decisions) are to be defined by LCDs, which excludes
defining them by articles. CMS states it
need undertake no special rules to implement this, pointing to the existing
Coverage Manual, which requires reasonable and necessary decisions applying in
advance and across a MAC to be defined by LCDs. Still, CMS could do much to clear up
confusion. For example, at least one
MAC simply uses an excel spreadsheet to define tests not payable by statute,
due to failing the statutory requirement to be reasonable and necessary. But this is exactly the one sole statutory
reason for which an LCD is required by statute, regulation, and program
manual. (Other types of “statutory
exclusions” such as tests for screening, or exclusions like eyeglasses, or
exclusion from payment due to bundling, are in fact statutory exclusions that
don’t require an LCD. But “reasonable
and necessary” is explicitly lifted from these other statutory exclusions and
made special, requiring an LCD.)

CMS declined to make any move toward a special nationwide
MAC or MACs for lab tests.

New Types of ADLTs

All ADLTs must be sole source lab tests. That being said, they may be either enumerated
ADLTs, which are about the same as MAAAs, or they may be sole source FDA
cleared or approved tests. Or – they may
be a third category of “similar” tests defined at the discretion of CMS. CMS is doing nothing with the third category
at this time.

Point of Care Tests

CMS has a couple paragraphs of comments that some
stakeholders urged it to make special rules to account for point of care
tests. The logic would be that point of
care tests in physician offices may be paid at distinctive rates, about which
information ought to be gathered, but that they will be lost due to the
low-volume exclusion of most physician labs and the NPI level billing rule
regarding “50%” of lab-based revenue. CMS
isn’t doing anything special for POCT tests.
It’s not clear exactly what it could have done – so far in the CPT, POCT
tests such as an office based POC hemoglobin are paid at the same CPT codes and
rates as all other hemoglobin tests, and thus, would have been completely
swamped out in the current coding system alone, under PAMA. If there are ever POCT specific CPT codes,
then they would need to be surveyed in physician (or E.R.) labs if their rates
were to be determined.

The PAMA Advisory
Panel

This panel will go on, much as did last year. CMS does announce that CMS will consider
topics of interest to be brought to the panel’s agenda. Such topics should be submitted to CMS at
the email, cdltpanel@cms.hhs.gov
.

Special HCPCS Codes

CMS will provide special HCPCS codes (presumably G codes)
wherever CPT codes are not available and PAMA requires codes. These include ADLT tests of the MAAA type and
FDA approved/cleared tests. CMS
specifically states that PAMA requires it to cross a bridge that AMA CPT has
never crossed, and provide different HCPCS codes for FDA approved tests, such
as an FDA approved KRAS test versus an LDT KRAS test. (CMS notes it got some flack on this
maneuver, but that it will do so as Congress clearly requires it). So look to an underdetermined number of FDA
approved tests to surface as G codes in addition to the generic equivalent test
co-existing as a CPT code.

AMA has been working on developing new quarterly
administrative Category I CPT codes, which will probably appear in an Appendix
as do administrative MAAA codes. CMS
doesn’t refer to these explicitly, only that it must produce quarterly new
codes and shall do so when CPT codes are not available. This language allows quarterly CPT codes (if
produced) to insert themselves into the coding system with no further remarks
from CMS, only the absence of a similar CMS HCPCS code.

CMS states that it considered adoption of McKesson Z
identifiers but did not view them as part of the Category I CPT code or CMS alphanumeric/G
code system, and they are not explicitly included in the implementation of
PAMA. That said, some future arrangement
between McKesson and CPT, incorporating Z type codes in CPT, might intervene,
again without further remarks from CMS.

About the Author

Bruce Quinn MD PhD is an expert on health reform, innovation, and Medicare policy. He helps both large and small companies understand and overcome hurdles to commercialization, as well as craft business strategies for a changing environment. CONTACT Dr. Quinn through www.brucequinn.com. BACKGROUND: Dr. Quinn has worked in academic medicine, Accenture business strategies, and for the Medicare program. EDUCATION: Stanford MD/PhD, MIT Postdoc, Kellogg MBA.